Saturday, 24 September 2011

How much has/will the banking crisis cost

Banking reform is being stalled, Cameron is on the side of the banks. Bank bonuses continue to be paid. As usual in Westminster, there’s not a lot anyone seems able to do.

There have been some interesting revelations on the banking/credit crisis though.

This is a crisis that was portrayed as almost toppling a government and that would have bankrupted Scotland many times over.

Pure, unadulterated hype.

The Guardian recently asked the Treasury some very pointed questions. The most pointed of all is the simplest of all.

How much will the bank bailout cost the taxpayer?

The Treasury response was reported to be somewhat limited, to a single word in fact.

“Nothing”.

How foolish does that leave Scotland’s mainstream media looking. They should be in such a state of embarrassment they are collectively beating a path to the SNP party headquarters bearing gifts of apology and promising Salmond only “good copy” for the next quarter.

Not happening, I suppose any form of media contrition was too much to hope for in what passes as investigative journalism in Scotland these days. Salmond himself with the “good copy” promise above would possibly have just asked for corrections to be printed and future balanced reporting.

I’m an optimistic realist, I’d love to see it, won’t hold my breath.

Owning up to such rubbish as was spouted at the Scots nation from 2007 through 2010 would destroy what little credibility the MSM has in some quarters of Scots society with regards to political reporting.

I must personally acknowledge that I believe the only quarter the MSM in Scotland have any credibility in the political reporting world is with those more or less politically detached or fully disengaged.

Circling the wagons back to the Treasury’s “nothing” statement, we need to look at what’s behind that statement.

After all the original cost quoted was in the region of £850 billion. The Treasury finally “committed” around £1.2 trillion to bailouts.

These were the numbers rammed down our throats, but the key word is “committed”, that’s just a promise to pay.

In actual fact it’s highly questionable that the Treasury could have borrowed that much money. It’s probably as well that particular issue wasn’t put to the test.

There have been two reviews since by the Treasury – each has lowered this potential liability.

In its simplest terms that ~£1.2 trillion was what the treasury was on the hook for if everything went unbelievably, worst case scenario, totally pear shaped. Literally “every insured asset” would need to burn to the ground.

The treasury was a bit like the insurer underwriting your house. As long as the house isn’t a total loss, the full amount will never be asked for in compensation.

In reality the treasury hasn’t had to do much more than fix a roof and pop in a couple of supports here and there to make certain the house doesn’t settle any further.

However, that isn’t exactly how it was sold to the Scots and regurgitated by the MSM without checking the facts and numbers.

The Treasury’s ~£1.2 trillion dropped, to £955 billion then a little over £500 billion.

So much for the liability, but how much cash did the Treasury actually have to borrow to bail out the banks – the Treasury didn’t have any liquid assets of its own to pump into the banks after all.

The Treasury is broke – it operates in the red.

The answer was a surprisingly small amount; just about 10% of what the MSM constantly fed the Scottish nation was the liability it couldn’t possibly afford. So far the cost has been ~£125 billion.

How can ~£125 billion equal nothing?

The government didn’t provide this insurance at no charge – so far it’s raked in almost £10 billion in charges from the banks, and hasn’t actually had to make any type of significant payout in its “insured liabilities”.

The money spent wasn’t just “given” to the banks – the government got “equity” or ownership. The treasury acted like any investor, although a fairly benevolent one, and made an investment. It bought shares in the banks. It took over other banks.

Those share prices will eventually recover, the shares will be sold, the money comes back. In the best case it comes back at a substantial profit.

In the case of English institutions like Northern Rock and B&B, they’ll hold onto the investments. As the mortgages are paid or defaulted the government gets its money, in spades. The government doesn’t just get the bare B of E rate – it gets full mortgage interest rate.

In many cases in this dis-United Kingdom if you have a mortgage, Whitehall is now the ultimate holder.

The Treasury therefore acknowledges the “Scottish Banks” are more a short to mid-term investment which it anticipates realizing a substantial profit from. The “English” banks are more of a longer term investment, but it still anticipates earning substantial funds from these also.

In its plainest, simplest terms, the treasury simply bought up the mortgage on your house, and as long as you kept paying there’s no issue whatsoever. If you don’t keep paying they sell the house. They keep the proceeds. It will almost never be a “total loss” and more often than not has a very good potential to turn a substantial profit. At worst they have to eat the difference and some admin costs.

The potential losses the treasury, and therefore you underwrote on your own house should be minimal – it will always have value, and even if that value is depressed for a while it will eventually rise again.

Meantime by various means the treasury rakes in the interest payments and bank fees.

In today’s market the total government investment is down some 10%, but while many of its individual investments may be down in share price, their parent companies are now operating back in the black. When any company is in the black the share prices usually recover. As the treasury bought these shares at depressed prices, the mid to long term increase has every potential of being substantial.

The full scenario is substantially more detailed, but the above in its most basic form is what now requires the treasury to give the answer to the question “what did/will the banking crisis ultimately cost the taxpayer”.

“Nothing”

Think about it, and think about the three years of lying propaganda that Scotland endured from the Scottish Office, her political parties (SNP exempt) and her mainstream media.